Let me lay some groundwork: the Service Corps of Retired Executives (SCORE) works with and supports the success of small businesses throughout the United States and cooperates with the U.S. Small Business Administration (SBA).
Jim CastigliaSCORE currently counts 28.8 million small businesses in the U.S., with 19% being family-owned (5.4 million). They define “family-owned” as any business with two or more family members operating it, and the majority of ownership or control lies within a family.
Family-owned businesses employ 60% of the U.S. workforce and create 78% of all new jobs. They generate 64% of America’s Gross Domestic Product (GDP). That’s a lot of muscle.
They can range from as small as two people up to thousands employed.
The Challenge to Survive
Their biggest challenge is survival. Only 30% survive the transition from first to second-generation ownership, 12% survive the transition from second to third-generation, and only 13% remain in the family for over 60 years. And 47% of family owners expecting to retire in five years DO NOT have a successor. This is the most interesting statistic.
SCORE offers this advice for family business survival:
- Take advantage of supervisory or advisory boards; this strategy controls 94% of family-owned firms
- Focus on the next generation; 40% of companies included younger family members on boards and committees to nurture business and management skills
- 74% of family-owned firms report strong values and culture and a customer and employee-oriented focus.
For this article, I separately interviewed three different owners of family businesses. The first owner is an active 75-year-old with three sons. His youngest son joined the company—a new car sales auto group— out of college. The business is a $80 million firm with four locations over 100 miles and 90 employees.
The second owner is 58 years old. It is a third-generation family enterprise, with three of his four sons involved in the business—a used/pre-owned vehicle sales and service organization with three stores and two service locations, $60 million in sales revenue, and 85 employees.
The third owner is a 54-year-old who started the business 28 years ago with his father as a partner. The father has been retired for several years. The company produces over $7 million in annual revenue (as high as $20 million) with 40 employees. This owner has four sons who’ve all gotten a taste of the business growing up. His second son will be graduating from college this spring and is joining the business full-time.
Growing Up in the Family Business
I asked these owners several questions, and here’s what they reported:
- Their kids grew up in the business early during the summers, some as young as 12. They did tasks like cutting the grass, washing cars, and moving vehicles on the lots. So, all three owners thought about family involvement from the get-go and provided opportunities for their children to be exposed to business operations.
- They all agree that one of the main factors the younger generation brings to the table is their familiarity with technology. One son has a university degree in Management Information Systems (MIS), but the other owners didn’t care whether or not the kids had a formal university education. So, formal education has played a role in only one of the three businesses.
- All three owners support ongoing education in various forms and methods. Everyone is expected to continue to learn and grow, attending relevant industry-offered programs and/or local college programs on project management and the like.
- The owner’s approach to balancing tradition with innovation depended on the business. However, online and internet resources have impacted all three owners; face-to-face interactions and relationships still dominate. And many core ideas haven’t changed in decades.
- All agreed that the kids committed to participating in the business bring a deep sense of care to the work. One owner called it a “give-a-shit” attitude. Another owner stated that the “willingness to adapt” to new business methods caused by technological advances was vital. He just isn’t as interested in learning technology as his son.
- Relationships are vital. All three owners have strong relationships with their sons, which reduces or eliminates generational clashes. These men have been very involved in their sons’ lives from an early age, often through sports, and trust and respect going both ways are the foundation of their relationships.
- Because of this trust and respect, the sons can make decisions and address business problems. However, the lines and boundaries are very clear. One owner described it as“separating church and state!” Another owner said he didn’t “step on the toes” of his son, though he’s always available for support and has an open-door policy.
- They have a strong core set of values that are absolute, but there’s a lot of room for individual expression. The theme was “If you do what’s best for the company, you’ll do what’s best for you.”
- Communication is daily, consistent, “very hands-on,” and at a high level. That said, they don’t micro-manage. All three owners agreed that this was a key factor in success.
- Another success factor reported was the visibility of the owners, particularly at the two businesses with multiple stores. The owners show up, are available to employees, and take an active role.
- Technology has impacted each business.The younger generation’s long-time involvement with technology makes it easier.
- Recognition is used throughout the three organizations to celebrate achievement in various ways. One owner said, “There’s nothing more gratifying than personally acknowledging someone.”
A Major Part of the Business Landscape
Family businesses are a major part of the American business landscape. Leveraging family talent can be a powerful strategic approach to enhancing the value of every business.
You just need to be aware of the unique differences involved and have plans to address them.
If you have any questions about this article, please contact me at jvcastiglia@icloud.com. I support seasoned business owners wanting to grow their companies and optimize their value.
Jim Castiglia is the founder of Business Street Fighter Consulting and supports entrepreneurial business owners in their desire to grow and maximize the value of their business. He can be reached by email at JimC@BSF.consulting or by phone at 949-338-7141. Visit www.BSF.consulting
